Despite government and Bank of England efforts to boost construction, underlying weakness in the sector persists and the Markit/CIPS survey for September suggests it will continue for the remainder of 2012. Thereafter the outlook is for a slow, tentative return to growth.
The survey reveals that residential building activity fell in September at its fastest rate since December 2010, while commercial work – for long the star of the industry – suffered the largest drop since February 2010. A sharp fall in total new orders is reflected in a drop in materials purchasing over the past four months, and helped keep confidence at its lowest level since the start of the recession.
However, official estimates for the second quarter of this year reveal that new orders for private-sector housing rose nearly 5% compared with a year earlier, although public-sector housing orders dropped over 5%.
The combined total of NHBC-registered private- and public-sector home starts in the three months to the end of August was 18% lower than a year earlier, but completions were up 3%. New mortgage approvals remained flat in August, at 47,665, but the RICS expects home sales to rise over the coming months.
Looking ahead, the latest Ernst & Young Item Club report suggests the decline in housing transactions will bottom out this autumn, and begin recovering in 2013, while consumer spending is set to rise by 0.6% this year and 0.8% next year.
Foreign demand for British wood and wood products other than furniture grew at an annual rate of 4.8% in the second quarter of 2012, and by 7.2% in the first six months. The value of imports eased by 0.9% in the year to the second quarter, and was down 0.5% annually in the first half, reflecting weak construction activity.
Overseas sales of UK-made furniture in the second quarter were up 3.3% on the same quarter last year, while demand over the first half of 2012 increased by a yearly 2.9%. However, UK imports of furniture surged 11.7% in the year to the second quarter, and by 6.4% in the first six months of the year compared with the same time in 2011.
Domestic demand for furniture has been a laggard since the start of the year, and was down in August, says the British Retail Consortium. But the market showed some signs of life in September with its best performance since the spring. However, official figures show a 1.9% annual drop in the value of sales in September, with volumes down 3.9%.
The seasonally adjusted volume of consumer spending on furniture and furnishings in the first six months of 2012 was 1.6% lower than a year earlier, but in unadjusted value terms it was 1% higher. In the second quarter the year-on-year volume and value of spending increased by 0.9% and 3.5% respectively.
In the wider picture, upward revisions to second-quarter GDP figures – including stronger performance in construction than previously thought – suggest there was probably modest growth if the lull in output due to June’s extra Bank holiday is taken into account. A rebound in economic growth in the third quarter is now widely expected, despite eurozone fears.
